The Impact of Poor Health on Retirement Age

This article first appeared in the autumn 2007 issue of the Expert Witness.

In personal injury cases, plaintiffs often argue that their disabilities will induce them to retire early and, therefore, cause a reduction in lifetime earnings. As such claims are largely based on the plaintiff’s own testimony, it is often difficult for the courts to determine whether the claim is credible and, if so, to identify the number of years by which retirement will be accelerated.

The purpose of this article is to assist the court in these determinations by providing a survey of the academic literature on the effects that health limitations have on the age of retirement. As the first edition of my textbook, Assessment of Personal Injury Damages (Butterworths, 1985) contains a survey of the early literature on this topic, I concentrate in this paper on articles published since 1990.

This yields a set of eight studies. Of these, two (Disney, for Britain, and Campolieti, for Canada) reported only that a negative change in health or disability status among individuals over 50 had a “significant” negative effect on the age at which those individuals retired.

Of the remaining studies, two provided data concerning the impact of alternative levels of health status on the probability that 50-65 year-olds would be working. Au, Crossley, and Schellhorn, using Canadian data from 2000-2001, reported that even a minor change in health status, from “very good” to “good,” would reduce the probability of employment by 10 percent. (See Table 1.) And a change from “excellent” to “poor/fair” could reduce employment by as much as 40 percent (among males).

Similarly, Cai and Kalb, using Australian data from 2001, found that a change in health status from “excellent” to “poor” would reduce the probability that individuals would be in the labour force by approximately 16-18 percent. (See Table 2.)

At age 55, these reductions in probabilities imply that individuals in poor health will retire between one and two years earlier than those in very good health. This is consistent with Gustman and Steinmeier’s finding, for the United States, that individuals who were “limited in the kind or amount of work” in which they could engage could be expected to retire two years earlier than those not so-limited.

Berger and Pelkowski, for the United States, and Jimenez-Martin, Labeaga, and Prieto, for Spain, also found impacts that were similar to those found by Campolieti and Au, et. al., but using somewhat different measures of health status.

Jimenez-Martin et. al. reported that 55-65 year-old individuals with “severe disability” were 14.6 percent less likely to be employed than were the non-disabled, and that those with “very severe disability” were 28.5 percent less likely to be employed than were the non-disabled.

Berger and Pelkowski found that among 51-61 year-old couples in which both the husband and wife had (at the beginning of the study period) been healthy and employed, the effect of a health problem was to reduce the probability that the wife would be working by 19 percent and that the husband would be working by 35 percent.

Finally, McGarry found that a change in health status from “good” to “fair” would reduce the probability that a 62 year-old would be working from approximately 45 percent to 40 percent.

To summarise, regardless of the country that is investigated, the evidence is clear: a reduction in health, from “good” to “fair or poor” will have a significant, negative impact on the probability that 50-65 year-old individuals will be working. Although the precise effect of such a reduction varies from study to study, there appears to be fairly consistent evidence that the average effect is to reduce the age of retirement by approximately two years (for example, from age 61 to age 59).